MEDC's Main criticizes firms that hold onto state dollars

The Michigan Economic Development Corp.'s new chief executive wants venture capital firms that have received state funding to expedite their investments.

MEDC CEO Greg Main told Business Review that he was dissatisfied with the progress of investors who have received state financing.

"I'm not all that excited about the performance so far," Main said. "We're now in a position where we've got about half a billion out there, and if you look at how many investments have been made with that half billion dollars, it's not a lot."

Main's assertion was particularly notable because he comes from an investing background in Oklahoma. But it also points to the likelihood that the state is poised to make additional demands from state-funded venture investors.

"I don't know what the real reason is," Main said, but "about half of the managers who have capital deployed with them haven't done anything."

Chrysalis officials in Ann Arbor did not respond to a request seeking comment by press time.

John Fletcher of Fletcher Spaght told Business Review that his firm was not an offender because it's only had its funding in hand since December.

Fletcher said it typically takes at least three months to conduct due diligence and complete legal work required to close a deal.

"I don't think he was in any way thinking about us," Fletcher said of Main. "We've been around to virtually every venture capitalist and every source of technology transfer and some corporations and repeating that every month. We've actually seen dozens of (potential) deals."

Venture capitalists acknowledge that the speed of investment making has been sluggish, although they argue that the financial crisis has turned cash conservation into a chief priority.

"The overall investment rate in this economic climate will be slower because people need to be extremely cautious about the types of deals they're getting into, the amount of capital required and the likely exit time frame," Fletcher said. But "if somebody's had money for over a year, even in a trying economic climate, I would've expected to see them do a deal."

Ron Reed, managing director of Seneca Partners, said Michigan's venture capital community could drive more investments in Michigan firms than outside investors.

"I think that more capital in the hands of Michigan venture capitalists is going to accelerate the amount of venture investing in Michigan," he said. "That's just intuitive."

Many Michigan venture capitalists are generally skittish about discussing MEDC's investment strategy because the agency is either an investor or potential investor.

Credit Suisse, which is managing MEDC's venture investment programs, is soon expected to make the final investments from the $95 million Venture Michigan Fund and the $110 million 21st Century Investment Fund. Credit Suisse has invested $61.5 million of the VMF money and $73.5 million of the 21st Century Investment Fund dollars.

The global investment firm is also managing another $75 million - a piece of the $300 million Invest Michigan Growth Capital Fund - designated for Michigan investments.

David Parsigian, managing partner of the Ann Arbor office of law firm Honigman Miller Schwartz and Cohn, said venture firms have a responsibility to the state and to their other investors.

"Everybody who took that money realized there was going to be some kind of obligation, however elastic it might be, to look very hard for deals in Michigan based on their funds and their fund objectives," Parsigian said.

Still, "they have a responsibility to be cautious and make prudent investments," he said. "The state is an investor in these funds, so their first duty is to find good deals so they can return that investment to the state. In that sense, I'm very sympathetic to the funds."

Lindsay Aspegren, co-founder of North Coast Technology Partners, which has offices in Ann Arbor and Midland and has not received state funding, said the economic crisis has slowed investment making. But he said the state should focus on growing an "indigenous" VC industry.